 Good afternoon. Thank you for joining today's NDSU Extension Agriculture Challenges webinar today. We are going to be talking about crop insurance considerations. So Fray Nolson has joined us to discuss those considerations. Just a couple housekeeping items before he gets started. If you are not speaking, please mute your line so we don't get feedback. Please hold your questions until the end and you can either ask those live or type them in the chat box and we'll make sure that they get answered either way. If you have to leave early for some reason or you lose connection, all of these are being recorded and will be made available on the NDSU Extension livestock management team's webpage. With that, I'm going to turn things over to Fray Nolson, our Extension crop economist here in Fargo. All right. Thank you, Miranda. Let me pull up my slide deck here. My computer is really, really slow today for some reason. So give me just a second to pull this up and then come on. There we go. And I'll go in presentation mode. Let it think. It's still coming up. All right. Miranda, can you see that? No, we can't. All right. Let me let me hit the share here. Just a second. Share screen, screen one. We'll do this. There we go. Let me move up. Now, can you see it? Yes, looks good. Fantastic. Okay. So thanks a lot for joining us today. What I'm going to try and do is provide a quick overview of some of the crop insurance issues that we're falling into this fall. I don't have time to go through obviously complete overview of crop insurance and all of the kind of nuances to it, but I do want to highlight some of the most common concerns, some most common questions that I'm getting this fall as it relates to crop insurance. There's really three kind of categories. One is some complaints or some concerns about optional units versus enterprise units. And I have an example that I'm going to go through to differentiate those two. Another one is a lot of questions coming in about the quality discount factors. So in particular on the wheat side and potentially on corn later on, there are some quality issues as well as some yield issues. And at least in wheat, there have been fields where they have a very high yields, but the quality has been very, very poor. And there are some adjustments the crop insurance can make. But the concern is that the adjustments made by crop insurance aren't really compensating that well. And then the final one, which really is more forward looking would be some issues this fall now that may spill over into the 2020 prevent plant considerations. And some of the decisions farmers may make about whether we harvest, try and harvest the crop this fall or we wait until spring. And again, I just want to, I don't have all the answers, but I do want to try and provide some background and context. So let me just jump into this first one, optional units versus enterprise units. Now this is a choice that the farmer has to make in the spring. So when they're enrolling in crop insurance, they have to make a choice of what type of coverage you want and the different levels of coverage. And there's different, there's a wide range of possibilities. But one of the, and this is the deadline for signing up for crop insurance is March 15th. So that date is consistent every year unless it falls on a weekend. But March 15th is a final day to sign up for crop insurance. So all of these decisions now about optional units or enterprise units were made last spring. But again, as we come into the fall now, we have some harvest problems. The differences between these two choices are really starting to show up in the level of coverage that farmers have. So again, to try and explain why some farmers are very upset about crop insurance, this might help. So let me first talk about optional units. Now this is the smallest insurable unit. I'm going to, I'm going to be kind of bend the rules a little bit, but the easiest thing to think about optional units is this is almost on a field by field basis, not quite. Technically what crop insurance says it has to be attractive land in the same township with a common operator, the same operator with the same ownership and the same rental agreement. So if you're renting some land on a crop share basis versus a cash rent basis, they technically need to be separated into two. But for kind of the conversation and to try and get a mental picture of what's going on, think about optional units as insurance that would be for a specific field or a very small subunit. Now optional units give you the highest insurance coverage levels. So this provides the best protection, but it also comes with the highest premium. Okay, see, there we go. Enterprise units. Enterprise units is a little bit different. So you can, you know, kind of what is the size of the insurable unit? An enterprise unit is all acres of the same crop and practice for a common operator in a county. So again, think about this as as we're going to ensure are all of our wheat acres as one pool. Instead of each wheat field being a separate insurable unit, now we're going to pool all of our wheat acres into one big unit. And and we won't get payments. Oops, I'm not sure what's happening there. There we go. What is that? There we go. Oops. So we're going to pool all of our acres into into one big pool for it for the insurance unit. So technically, you can also choose multi county enterprise units. That's something it was new added this year. Very few farmers are actually using that. So again, think of enterprise units as a much bigger, broader base. It provides lower protection. You have to have a much larger loss because you have to have a loss across all of your acres instead of just a particular field. The advantage to this is that it has a much lower annual premium. So if you think about an analogy to car insurance, the enterprise units would be like having full coverage. So any kind of little ding or dent insurance will will start kicking in versus enterprise units would be like liability insurance. You have to have a total disaster before really the crop insurance would start kicking in make some payments. So I prepared a really quick, simple example to try and go through and make this comparison. And again, I don't want to get lost in the numbers, but I do want to show you the difference and why this is important as we move into in particular corn harvest and this decision about, well, do we leave those acres? Do we harvest the acres? So let me focus first on the optional units. So again, this is the smallest unit. This would be almost like a field by field basis. In this example, I said, let's just assume we have 160 acres of corn. The APH or the history, the average production history, the yield is 140 bushel per acre. So that's kind of our average yield. We've taken 70% coverage for a revenue product, which means we have to have a 30% deductible. Now don't worry too much right now about the initial price harvest price. That's just part of the revenue coverage. This is this is just an example to show how the differences between the two stack up. So let's assume again, you planted this 160 acres. It was planted a little bit late. We had some production problems. We've got some low spots that are drowned out are as we harvest the crop, we actually get 90 bushels per acre. So instead of the 140 bushel average that we typically get, our actual production is 90 bushels per acre. So now we got to do the math to figure out, well, do we get is this enough of a reduction to actually receive an indemnity payment to see receive some kind of reimbursement? So we first have to calculate the guarantee. What is our kind of our guaranteed minimum? So we take the 160 acres times 140 bushels per acre times $4, which is the price selection times 0.7. The 0.7 again, we have a 30% deductible. So our coverage is for $62,720. So if our actual revenue falls below that, then we'll get an indemnity payment. So our actual yields now for we have 160 acres, we have 90 bushels per acre, we take that times the harvest price, which is 390, so a little bit lower. And our revenue, the actual revenue for calculation for crop insurance is $56,160. So again, if you subtract those two and look at that, you take 62,720, which is our minimum. We fell below that of 56,160. So we'll get an indemnity payment. We'll get a check from crop insurance for $6,560. But that's only assuming that we again insured that kind of field as a separate unit. Now let's kick this over into enterprise units, the same farmer, but they made a different choice in March when they decided how many acres to insure and what kind of insurance coverage to put in place. In this example, they used enterprise units. So now we're going to pool all of our corn acres into one great big pool and say, well, we're not going to receive a payment unless the average over all of those falls below a trigger point. So in this case, we got 600 acres of corn. Again, we have 140 bushel proving yield, or that's kind of our average yield history. Now it's very common for farmers when they move to this enterprise unit, when they pool all of it together to try and increase the coverage level or reduce the deductible. So 85% revenue coverage or 15% deductible is very common. Okay, so optional units are very expensive. Enterprise units are much cheaper for corn. Enterprise units are about half the cost of optional units. So again, by going with enterprise and increasing the coverage level or reducing the deductible, at least you have it's a little bit more expensive, but then you do have some additional coverage. So again, in this example, let's say that we have 440 acres. Most of our corn did fine. We got the average yield of 140 bushels. But this one quarter, this 160 acres that we talked about in the optional units got 90 bushels. So we've got one field over here that really is causing us problems. Okay, so let's do the math on that. Our guarantee. So what's our minimum? You take 600 acres times 140 bushels times the $4, which is the revenue part, times 0.85. And we get $285,600. So that's kind of our minimum guarantee. If we figure out what was actually harvested and kind of what the value of the actual production is, we take 76,000 bushels, which would be 440 acres at 140 bushels and our 160 acres at 90 bushels. You add all those up. We harvested 76,000 bushels. We get the harvest price, which is a little bit lower. So our actual production then the revenue we got from the crop we actually harvested was $296,400. Well, if you look at that, the revenue as calculated by crop insurance for the production was actually higher than our guarantee. So under this example, we're not going to receive any payment. So insurance will not compensate us for this one field that got 90 bushels per acre. So again, by going with the enterprise units, we have lower coverage. We got lower protection, but we saved a lot of money. Now this last spring or the last couple years, farmers have been shifting out of the optional units and into enterprise units to try and save some money because the premiums are much more expensive. But now this year, we're running into this situation where we have some of the fields we're harvesting have average yields or even slightly above average yields. But there's a few of our areas or a few of the fields we have in our units that fall below that. And I've heard a lot of farmers kind of really regretting the fact that they almost went too cheap. They switched to this enterprise units and they're concerned now that even though they have losses on some of their fields, they're still not going to get any kind of insurance payment because of the loss. So how does this impact again, this decision, should we leave the crop in the field and wait till spring to harvest in particular for corn or who try and harvest this fall? Now some are trying to make the argument that well with enterprise units, because we're not going to get an insurance claim on it, well, you know, it's kind of low priority. I'm actually going to make the opposite case is because in my example, those 160 acres at the lower yield are still going to be really important, actually more important because crop insurance is not going to cover those. So as I've talked to farmers and trying to help them think through what are the decisions they make should we, when we're in particular now harvesting corn, how should we approach this? My recommendation of course is to start harvest with those acres or those fields that are easily accessible. Again, those fields that are probably well drained are going to be easy to get into. That's kind of a no-brainer, right? You start on those fields that you know you can get as much harvest efficiency as possible. And also those that are highest yielding. And again, I think that makes common economic sense. Now we've got a couple constraints. There's a couple things going to limit how quickly we can harvest the crop this fall and might influence our decision about leaving some crop till next spring. Obviously, grain drying capacity as well as the cost of drying grain is going to be important, as well as on-farm storage. And I know Ken Halivang is going to be talking about some of those issues in a later webinar. The other thing I want to bring up, of course, is if you leave the crop until spring, this causes some cash flow problems. You don't have the cash flow. You're not able to sell that crop and generate the cash to pay your bills. So if the crop is out in the field, it's going to be a bit more difficult to pay the bills on time. There's also some questions about how the lenders, the agricultural lenders, are going to try and put the value on the crop that's standing in the field. You know, if you've harvested it and put it in a bin, you can put collateral value on it. There's value in your assets that you can use as collateral to borrow money and to make sure that you've got payments made on time. But if the crop is still in the field, there's concerns that the ag lenders are going to say, well, we don't know how many bushels are there. We don't know what the quality is going to be. We're not going to be able to use that as collateral as an asset to be able to use it for a loan. So there are some important things here. And obviously, the fundamental question is, well, what do you think the potential overwinter losses will be? One final detail, I guess, on this crop insurance thing that I want to make sure everybody understands is we do have an end of insurance date where our insurance coverage stops at a certain date. Now for spring wheat, durham, and barley, we've already reached that date, which is October 31. For corn and soybean, the final insurance date, the date where you can have insurance up to is December 10th. So typically what happens is on early in December, the crop adjuster will come out and say, well, look, you have an estimated, let's say, 70 bushels of corn standing in this field. So they're going to write 70 bushels down as your actual production. And they'll do the math to say, well, do we, do you have an insurable loss or not? Now by December 10th, all that paperwork needs to be put in. And so if the crop stands from the middle of December until next May, crop insurance does not cover any kind of loss. So if the adjuster comes in and says we got 70 bushels per acre, and all of a sudden you go back next spring and you harvest 50, well, you know, that's for crop insurance records, it says you had 70. So that loss is all on your financial statements. There's no compensation. So the insurance coverage ends on December 10th, unless there is one little caveat, unless the adjuster cannot make an accurate yield appraisal. And that kind of came into play last year when we had a bunch of soybeans left in the field that were under the snow. Crop adjuster couldn't go out and make an accurate estimate of yield. So they waited until spring to try and make the adjustment. But in the majority of cases, I want to emphasize majority of cases, December 10th is the last day you're going to have insurance coverage for corn and for soybeans. Okay, moving on to discount factors. And this is a kind of quality adjustment. So again, federal crop insurance always has a difficult time adjusting for quality. The I don't know why this keeps popping up, but I'm going to try and minimize it again. Something goofy is going on here. There we go. So, oops. Let me move back up one. I jumped too quick. Come on. One more. There we go. So federal crop insurance is originally designed to take care of yield losses. That was the original content. Well, over time at like for a lot of the crops we grew up here, spring wheat, Durham, malt barley, field peas, dry edible beans, we have these crops that are very quality sensitive. And so what's happened is crop insurance has tried to make recognize that quality can be also an insurable loss. So you may have the bushels, but if the quality is very, very poor, you can get it, you can claim an indemnity payment, you can get a crop insurance payment. So to do this, what crop insurance has done is they come up with a standardized discount factor. So they have these tables that they've prepared of what's the normal adjustment kind of value loss created by these particular discounts. And they take your actual yields and they adjust downward to compensate for the quality. So let me go through an example. This is for sprout damage in spring wheat and for Durham. So if I have, let's say that I have 11.5% sprout damage, when I deliver it to the elevators, say you got sprout damage of 11.5%. So what they're going to do, what crop insurance is going to do is going to say, well, because it's within this 11.01 to 12 range, we're going to reduce the bushels you actually produced by 11.7%. So we've had some wheat that's also that also had a lot of sprout damage. And so this is kind of the discount factors that are applied within crop insurance. Now notice those numbers, the 11.7% on the right hand side is right in kind of in the middle of the range of the sprout damage. We also had some wheat that had falling numbers problems. So again, falling numbers is just a measure of potential sprout damage. A sprout hasn't physically appeared, but there has been some water damage. And the value of the crop has been deteriorated. Okay, so if we were to have, let's say a falling numbers of when they tested it, let's say of 230. So our falling numbers is 230. That means that what crop insurance is going to do is discount the yields are going to take the yields we had and discount it by an additional 12.1%. To compensate us for this damage or the economic loss caused by these damaged kernels. Now one of the questions that came up this last fall is normally, normally these discount factors are cumulative. So if we have a discount factor for light test weight, we have a discount factor for sprout damage, we can add those together and combine them and have a larger discount. That doesn't apply for sprout damage and falling numbers. So what crop insurance does is they pick one or the two, whichever is higher. So this is one of those little unique things. So they don't want you to double count a falling numbers problem, which is really one indication of sprout damage and the physical sprout that comes out. So it's going to be one or the other. And again, I prepared a very quick example to try and show everyone if it will flip for me. There we go. So let's say we had a spring wheat. We had when we harvested it, we brought it in the sample and it said we had 210 falling numbers. And based on the tables, that would be a 15.5% discount. But it also had 10.2% sprout damage. Well, we look it up on the tables, 10.2% sprout damage is a discount of 10.7%. So what crop insurance is doing is saying, well, which one of those is larger? Which one of those is dominant? Well, in this case, the falling numbers discount is larger than the sprout damage discount. So your yield will be reduced by 15.5%. So that's the number that's used. So again, just to show you why farmers a little upset with this process, those discount factors typically don't fully compensate you for the economic loss. So again, I'm just went through a very quick example of we have 160 acres of spring wheat. Our average yield or insurable yield is 50 bushels per acre. We take 75% coverage. Our guarantee value-wise would be 160 acres times 50 times the value of 5.77, $5.70 a bushel, times 0.75, which is our coverage level. We get 34,620. Now if we actually harvest the 160 acres, but we get 49 bushels, we use the harvest price, which is $5.05. Now because of the falling numbers problem, we're going to use that 15.5% discount factor. So we're going to take all those numbers and reduce them by another 15.5%. So based for the calculations, then we have a $33,455 actual revenue, which means then we have a loss. You subtract the $34,006 minus the $33,455. We should receive a payment of $1,164. However, the market losses are much larger than that. So when we haul the grain to the elevator, we say, okay, well, what's this worth? The elevator, these elevators so far have been using about a one cent per point discount for falling numbers. So their base is 300. Anything below 300, you get a discount on. So if we brought in 210 as the falling number, 300 minus 210 is 90 times a penny a point, we're going to get a 90 cent discount. Well, on 160 bushels an acre, times 49 bushels, times 90 cents, times our 75% coverage, because we have this deductible. Our actual loss from the marketplace is $5,292. Crop insurance is only paying us $1,164. So this is why farmers are getting a little upset. They always complain about this. This has been a problem for many, many years. We've been working, trying to lobby to get a better method, but this is the methodology we have, and it's the one we're stuck with. So let me go on to my final one for planting considerations. This is a prevent plant thing. So we have crop that's left in the field, or we have problems. What happens next spring if it stays wet? One of the conditions for prevented plant, for PP coverage, for crop insurance coverage for a crop that's not planted, is the land has to be available for planting. That's one of the definitions. So this has to be a field that is, has the capacity to be planted. Okay, and there's some formal definitions here. The one I'm going to flip to is on the second page, where actually crop insurance is defined not only what's available to plant, but what's unavailable to plant. So for crop insurance purposes, unavailable to plant is considered acreage that hasn't, has any other condition as determined by the insurance company, which would prevent the proper and timely planting of the crop. So let me give you an example. What happens if you have a field of wheat that is, is that got snow on it, you're not able to harvest it this fall. It stays really, really wet over winter. We have a lot of snowfall next spring comes in the, and the wheat hasn't been harvested yet. Well, are you going to be able to plant that crop? Are you going to be able to till it and actually put another crop on top of it? Well, if it stays wet, you may not be able to do that. The question is, will crop insurance say that that field is eligible for planting? Okay. And again, you, what will happen? How do you define this prevent proper and timely planting of the crop? Now, we're currently talking about this at the national level. There's a lot of concern about what's going on. The goal is to try and provide some clarity and some consistency across insurance companies, as well as crop adjusters. So this is an ongoing thing. It's something you're just going to have to stay tuned to. As soon as we have some more information, we'll let you know. And with that, I think I have about two or three minutes for questions. Yeah, we'll open up for questions now. Feel free to either, you can ask them out loud or type them into the chat box and Rain will make sure to answer those. As you're thinking of questions, a couple reminders that these are being recorded and so you can access them on the NDSU Extension livestock management team website. Tomorrow we have Ken Helving joining us to talk about grain, drying, and storage options. And Friday we'll have a discussion on harvesting high moisture corn. Well, I don't hear any questions. I don't know if anybody typed in on the chat box or not. Nope, nothing in the chat box. If you do have a question for Rain, be sure to reach out and contact him and you can find his contact information on the NDSU Extension webpage. Thank you for joining us and we look forward to you joining us tomorrow. All right, thank you.